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Economy

World's central banks still cool on yuan

Chinese currency accounts for only 0.9% of foreign currency reserves

The headquarters of the People's Bank of China in Beijing

TOKYO -- Central banks around the world are not loading up on the yuan despite the currency being added to the International Monetary Fund's basket of elite currencies. Experts think central banks are still wary of the Chinese currency's future value.

Latest data from the IMF showed that the world's central banks reported holding $82 billion worth of yuan, also known as the renminbi, as of March 2017. This equaled only 0.9% of the $8.8 trillion of disclosed foreign reserves holdings.

The most popular foreign currency was the U.S. dollar, often referred to as the world's reserve currency. It made up $5.7 trillion, or 64.5%, of disclosed reserves.

The euro was the second most widely held currency at 19.3%, followed by the Japanese yen at 4.6% and the pound at 4.3%.

Central banks were expected to increase their holdings of yuan after the Chinese currency was officially included in October 2016 among the IMF's special drawing rights -- an artificial asset consisting of four other currencies: the dollar, Euro, yen and pound.

"With the share of the renminbi in the SDR set to 10.92%, some were expecting the share of the Chinese currency in foreign reserves to rise to a similar level, creating a huge demand for the renminbi," Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said in a report.

"It seems that central banks and governments around the world are still cautious about the future path of the renminbi and its value," he added.

But it may be premature to conclude that central banks have shunned the yuan altogether. Inclusion of the currency to the SDR is only part of Beijing's drive to internationalize the yuan, or to have it held by central banks and other financial institutions. 

The latest push came from the Bond Connect program. Officially launched on Monday, the program gives international investors access to China's $9 trillion bond market via the Hong Kong Exchange and Clearing House.

"In principle, Bond Connect should work to increase the holdings of renminbi among foreign investors, including central banks," said Daisuke Karakama, chief market economist at Mizuho Bank.

He pointed out that the difficulty in trading renminbi assets had put off foreign investors from investing in the currency. "The program should make it easier for them to buy and sell renminbi assets," he added.

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